The Government recently released the 2024-25 Portfolio Additional Estimates Statements (PAES) which are meant to report on how departments are going at delivering on the policy goals and spending plans set out in the Portfolio Budget Statements (PBS). This year’s timing is a little odd, with the PAES appearing somewhat later than usual and the 2025-26 budget likely appearing earlier than usual towards the end month (unless we have a snap election). So what is intended to be a kind of mid-year update has actually appeared just before the next budget. Anyway, it is what it is, and in an age of diminishing disclosure it does provide some data points on Defence’s plans and achievements that are worth reviewing.

We should note that the Defence portfolio’s Senate estimates hearings on 26 February, which largely wasted their time arguing over the strategically irrelevant issue of who knew what when about the PLA-Navy task force’s live firing exercise, did manage to spend some time on its primary role of interrogating the PAES, so we’ll also draw on the estimates hearings.

Let’s start with the big picture, namely how much money Defence is getting. In the PBS, the Defence portfolio (i.e., the Department of Defence, the Australian Signals Directorate and the Australian Submarine Agency) were to get $55,687 million. That’s come down marginally to $55,564 million in the PAES. That decrease is the net result of an additional $60 million for operations, a decrease of $239.3 million as a foreign exchange adjustment, and an unexplained additional $30 million termed ‘Other Departmental Budget Adjustments’. Departments are compensated on a no win, no loss basis for exchange rate fluctuations so the foreign exchange adjustment is not a decrease in real terms, but rather a mechanism to ensure Defence has the same buying power.

It’s hard to hear a minister discuss Defence without them referring to the $5.7 billion the Albanese government has added to the portfolio’s funding line over the forward estimates (i.e., 2024-25 to 2027-28). But as numerous commentators have noted, the bulk of that ($3.8 billion) sits in the last year of the forward estimates. This financial year Defence only got $400 million of the new money in the PBS. The PAES doesn’t change that.

Let’s spell out in simple terms what that means. Defence’s current funding is virtually the same amount that was set out almost a decade ago in the 2016 White Paper. Despite everything that has happened in the world since then (such as the de facto annexation of the South China Sea by China, Russia’s invasion of Ukraine, Donald Trump walking away the West and the rules-based global order, etc), the only addition that has been made to the Defence’s 2024-25 funding line since 2016 has been $400 million, or a 0.7% increase. So despite governments of both sides of politics saying that we are in the most uncertain security environment since World War II and we no longer have warning time (we can all recite these words by heart after the 2020 Defence Strategic Update, 2023 Defence Strategic Review, 2024 National Defence Strategy and untold numbers of speeches, doorstops, interviews and other affirmations of the seriousness of our circumstances), Defence has had only a 0.7% increase to a ten-year old plan.

We can illustrate this in a simple chart that compares the funding lines in the 2016 DWP, 2020 DSU, 2024 NDS and what was actually spent. They map directly on top of each other, showing nothing has changed since 2016. It’s only when we get to 2027-28 (the back end of the next term of government) that we see any noticeable divergence between the old and new plans with the $3.8 billion. We are still stuck in a spending plan that dates back to an earlier, very different era. The PAES does nothing to change this situation. It’s hard to believe that the Government believes its own strategic documents.

Figure 1: Defence spending—planned versus actual (A$b)

In terms of spending as a percentage of GDP, the PBS estimate of 2.02% has dropped marginally to 2.01% due to the slight fall in planned defence spending and a slight increase in GDP estimates. That is to all intents and purposes a meaningless change.

The bigger point is that defence spending has remained stuck between 1.9% and 2.0% percent since the previous government got it back to 1.9% in 2017-18. Why is that the case when according to the 2016 White Paper we should have hit at least 2.2% by now? It’s not because promised funding hasn’t been delivered (Figure 1 shows that it has). The answer is that GDP predictions have fluctuated. Indeed, back in 2020-21 at the peak of the financial crisis created by Covid-19, defence spending for this year was estimated to hit 2.39% purely because GDP estimates were so pessimistic.

Yet the opposite has happened. Over the past three years, GDP has soared—but that’s been driven by inflation. There’s simply a lot more dollars floating around in the economy. But because Defence is still getting same dollars set out in 2016 (plus the rather meagre $400 million), its ‘share’ of the economy is a smaller, now down to 2.01%.

One might say, what’s the big deal if Defence is still getting its promised dollars? The problem (other than the really big one that that number of dollars was set out in a vastly different age), is that the dollars Defence is getting have lost their buying power due to that same inflation. It’s hard to put precise numbers around that loss of buying power, but it could be close to 8%, or $4-5 billion per year. And Defence has received no compensation for that loss of buying power.

Ministers are correct when they say Defence is spending record sums on equipment, but that’s always the case when the budget is growing in both nominal and real terms. Since 2012-13 (when the Gillard government cut the defence budget in a vain attempt to get back into surplus), Defence’s acquisition spend has only decreased once on the previous year’s and that was in 2022-23 under this government. Spending record sums is simply par for the course.

The PAES confirms that Defence is making very little progress in shifting the balance of spending between personnel, acquisition and sustainment. We have previously written that the 2016 White Paper and 2020 DSU aimed to increase acquisition’s share of the total budget to nearly 40%. According to the White Paper’s funding model, we should have hit 39% this year. However, acquisition’s share has remained persistently stuck a percentage point or two either side of 30% for a decade. Nevertheless, the 2024 NDS’s funding model bravely decided to set an even higher target of 42% by 2033-34. However, the PAES’s numbers indicate Defence is still at 31% this year, showing still hasn’t found a way to break out of the pattern of the past decade. And the bottom line is, if you can’t spend the money, you’re not getting the capabilities in the Integrated Investment Program into service.

We also need to note that while the top level budget line has not changed, what it is being spent on has changed. Those changes are set out in each PBS and PAES in the budget measures (i.e., variations) table. Changing priorities is of course the prerogative of governments, but many, if not most, of them require Defence to fund the new measures out of existing funding, and we rarely hear what has been given up to find the money. The cumulative effect of those changes is now considerable. The REDSPICE cyber program transferred nearly $1 billion per year from the Department of Defence to the Australian Signals Directorate. REDSPICE’s impact on 2024-25 alone is $974.9 million that is not available to acquire or operate military capabilities.

In the PAES, the main budget measures are (page 16):

• $545.5 million over the period 2024-25 to 2025-26 for further defence support to Ukraine, being met from within existing Defence resources. According to Defence officials at estimates this is primarily the transfer of retired ADF equipment, not money or new equipment being acquired by Australian for Ukraine.
• $972.8 million over the period 2024-25 to 2034-35 (or close to $100 million per year) for ‘Defence Workforce Plan – investing in Defence’s people’, again being met from within Defence’s resources. According to Defence officials, nothing had to be cut or reprioritised to find this funding: ‘It’s just a reflection that government has made some different policy parameters around the employment of our workforce, particularly the ADF, and we’ve prioritised it within our workforce budget (page 58).’ Which raises the question of why this was even included as a variation or measure….
• $269.0 million over the period 2024-25 to 2027-28 (i.e., around $90 million per year) for ‘Nuclear-Powered Submarine Program – security and industry growth’, being funded from existing resources, which once again according to Defence officials was always part of the plan and nothing new.
• Several measures which are listed as ‘not for publication’ due to commercial sensitivities.
• Foreign exchange adjustments, which somewhat counter-intuitively reduce Defence’s funding over the forward estimates by around $1 billion despite the abysmal state of the Aussie dollar.

That’s the big picture, essentially a defence budget frozen in time, with no significant change coming for three years, at which point any additional funding is earmarked for nuclear-powered submarines and general purpose frigates.

We can turn to the details. As always there is trove of information, far more than we can cover here but here are some key points.

For those concerned about progress towards Australia’s nuclear-powered submarine capability, the PAES’s numbers are not reassuring. The PBS estimate for Program 2.16: Nuclear-Powered Submarines for 2024-25 was $2, 807 million. That number has been revised downwards to $2,303 million in the PAES (page 57), a reduction of close to half a billion dollars. That’s despite Defence Minister Richard Marles delivering a large brown paper bag containing A$800 million to newly confirmed US Secretary of Defense Pete Hegseth as Australia’s first instalment towards the development of America’s submarine industrial base.

The Navy’s 2024-25 target for Unit Availability Days for major combatants (frigates, destroyers and submarines) has been revised downwards since the PBS from 3,294 to 2,420 days (page 43). That’s a big drop, but quite consistent with the pattern over the past decade: budget estimates are high, but actual days always come in much lower. Nevertheless, actual UADs have been trending downwards since 2017-18, falling by nearly 1,000 days or 29%—not a great situation to be in with a PLA Navy task force making a show of strength off Sydney.

Figure 2: Navy major combatant Unit Availability Days, 2014-15 to 2024-25

Despite the declining UADs, the Navy needs a lot more money than was programmed in the PBS. It’s estimated funding has gone from $10,764 million in the PBS to $11,284 million in the PAES, an increase of $520 million (page 42). That appears to be driven by two things:

• The estimated expenditure for the Hunter frigate program has risen by $613 million from $813 million to $1,426 million as the project transitions to construction (page 96).
• The sustainment cost of the Collins submarine fleet has risen by $94 million since the PBS (page 106).
• The estimated expenditure for SSNs however has fallen by $304 million from $2,591 million to $2,286 million, another data point that will give AUKUS supports some cause for concern (page 95).

Readers who are good at mental arithmetic will have noticed than the estimated combined expenditure for SSNs and Hunter frigates this year has hit $3.7 billion with the first SSN still at least seven years away and the first Hunter nine years away from providing operational capability.

Those are not the only expensive things in the ADF’s inventory. The F-35A has finally reached it rightful place as the Air Force’s most expensive capability, with its estimated annual sustainment cost rising by $40 million since the PBS to reach $566 million, surpassing the combined F/A-18F Super Hornet and Growler cost of $536 million (page 101). That also makes it the second most expensive capability in the ADF after Collins. The Super Hornet/Growler fleet is still significantly more expensive per flying hour than the F-35A at a whopping $90,541 versus $56,600. The US’s goal was always to get the cost of the F-35A somewhere close to previous generation fighters; we are not even close in Australia where the ‘classic’ F/A-18A/B cost less than $18,000 per hour over its last five years. Unfortunately, the F-35A hourly costs seem to have stabilised around $50,000 so it’s unlikely we’ll see any significant improvement.

Questions and testimony at Senate estimates hearings provided more useful information (and resulted in the departure of a Deputy Secretary), but we’ll leave our analysis of that for another day.